131.602 Tobacco product manufacturer's options to become participating manufacturer or to contribute to qualified escrow fund -- Management of escrow fund -- Penalties for failure to place require - Kentucky Statutes

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Page 1 of 3 131.602 Tobacco product manufacturer's options to become participating manufacturer or to contribute to qualified escrow fund -- Management of
escrow fund -- Penalties for failure to place required funds in escrow --
Assignment of escrow funds to Commonwealth -- Credit of assigned funds
against judgment -- Opinion of Attorney General required prior to assignment. (1) Any tobacco product manufacturer selling cigarettes to consumers within this state, whether directly or through a distributor, retailer, or similar intermediary or
intermediaries, after June 30, 2000, shall do one (1) of the following:
(a) Become a participating manufacturer, as that term is defined in section II(jj) of the master settlement agreement, and generally perform its financial
obligations under the master settlement agreement; or (b) Place into a qualified escrow fund by April 15 of the year following the year in question the following amounts, as such amounts are adjusted for inflation:
1. For 2000: $0.0104712 per unit sold after June 30, 2000; 2. For each of 2001 and 2002: $0.0136125 per unit sold; 3. For each of 2003 through 2006: $0.0167539 per unit sold; and 4. For 2007 and each year thereafter: $0.0188482 per unit sold. (2) A tobacco product manufacturer that places funds into escrow pursuant to subsection (1)(b) of this section shall receive the interest or other appreciation on
such funds as earned. Such funds themselves shall be released from escrow only
under the following circumstances:
(a) To pay a judgment or settlement on any released claim brought against such tobacco product manufacturer by Kentucky or any releasing party located or
residing in Kentucky. Funds shall be released from escrow under this
paragraph in the order in which they were placed into escrow and only to the
extent and at the time necessary to make payments required under such
judgment or settlement; (b) To the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow on account of units sold in the state in a
particular year was greater than the master settlement agreement payments, as
determined pursuant to section IX(i) of that agreement, including after final
determination of all adjustments, that such manufacturer would have been
required to make on account of such units sold had it been a participating
manufacturer, the excess shall be released from escrow and revert back to
such tobacco product manufacturer; or (c) To the extent not released from escrow under paragraph (a) or (b) of this subsection, funds shall be released from escrow and revert back to such
tobacco product manufacturer twenty-five (25) years after the date on which
they were placed into escrow. (3) Each tobacco product manufacturer that elects to place funds into escrow pursuant to subsection (1)(b) of this section shall annually certify to the Attorney General that
it is in compliance with subsections (1)(b) and (2) of this section. The Attorney
General may bring a civil action on behalf of Kentucky against any tobacco product Page 2 of 3 manufacturer that fails to place into escrow the funds required under this section.
Any tobacco product manufacturer that fails in any year to place into escrow the
funds required under this section shall:
(a) Be required within fifteen (15) days to place such funds into escrow as shall bring it into compliance with this section. The court, upon a finding of a
violation of subsection (1)(b) or (2) of this section, may impose a civil
penalty, to be paid to the general fund of Kentucky, in an amount not to
exceed five percent (5%) of the amount improperly withheld from escrow per
day of the violation and in a total amount not to exceed one hundred percent
(100%) of the original amount improperly withheld from escrow; (b) In the case of a knowing violation, be required within fifteen (15) days to place such funds into escrow as shall bring it into compliance with this
section. The court, upon a finding of a knowing violation of subsection (1)(b)
or (2) of this section, may impose a civil penalty, to be paid to the general
fund of Kentucky, in an amount not to exceed fifteen percent (15%) of the
amount improperly withheld from escrow per day of the violation and in a
total amount not to exceed three hundred percent (300%) of the original
amount improperly withheld from escrow; and (c) In the case of a second knowing violation, be prohibited from selling cigarettes to consumers within Kentucky, whether directly or through a
distributor, retailer, or similar intermediary, for a period not to exceed two (2)
years. Each failure to make an annual deposit required under this section shall constitute a
separate violation. (4) Notwithstanding the provisions of subsection (2) of this section, a tobacco product manufacturer that elects to place funds into escrow pursuant to subsection (1)(b) of
this section may make an irrevocable assignment of its interest in the funds to the
benefit of the Commonwealth of Kentucky. Such assignment shall be permanent
and apply to all funds in the subject escrow account or that may subsequently come
into such account, including those deposited into the escrow account prior to the
assignment being executed, those deposited into the escrow account after the
assignment is executed, and interest or other appreciation on such funds. The
tobacco product manufacturer, the Attorney General, and the financial institution
where the escrow account is maintained may make such amendments to the
qualified escrow account agreement as may be necessary to effectuate an
assignment of rights executed pursuant to this subsection or a withdrawal of funds
from the escrow account pursuant to subsection (5) of this section. An assignment
of rights executed pursuant to this subsection shall be in writing, signed by a duly
authorized representative of the tobacco product manufacturer making the
assignment, and shall become effective upon delivery of the assignment to the
Attorney General and the financial institution where the escrow account is
maintained. (5) Notwithstanding the provisions of subsection (2) of this section, any escrow funds assigned to the Commonwealth pursuant to subsection (4) of this section shall be Page 3 of 3 withdrawn by the Commonwealth upon request by the Treasurer of the
Commonwealth and approval of the Attorney General. Any funds withdrawn
pursuant to this subsection shall be deposited in the general fund and shall be
calculated on a dollar-for-dollar basis as a credit against any judgment or settlement
described in subsection (2)(a) of this section which may be obtained against the
tobacco product manufacturer who has assigned the funds in the subject escrow
account. Nothing in this subsection or in subsection (4) of this section shall be
construed to relieve a tobacco product manufacturer from any past, current, or
future obligations the manufacturer may have pursuant to this chapter. (6) Notwithstanding subsections (4) and (5) of this section, no assignment of escrows created pursuant to subsection (1)(b) of this section shall be made by a tobacco
product manufacturer, or shall be accepted by the Treasurer of the Commonwealth,
unless and until the Attorney General has provided an opinion to the Treasurer, with
a copy of the opinion provided to the Governor and the Legislative Research
Commission, that amendments to KRS 131.600 and subsections (4) and (5) of this
section will not jeopardize the Commonwealth's payments under the master
settlement agreement in the form of a nonparticipating manufacturer adjustment. Effective: April 25, 2006
History: Amended 2006 Ky. Acts ch. 252, Pt. XIX, sec. 1, effective April 25, 2006. -- Amended 2004 Ky. Acts ch. 135, sec. 2, effective July 13, 2004. -- Created 2000 Ky.
Acts ch. 342, sec. 2, effective June 30, 2000.